Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You buy a mining site, including exploration rights and there are set up costs of 285m. You expect to extract the following value of gold

You buy a mining site, including exploration rights and there are set up costs of 285m. You expect to extract the following value of gold over the next 6 years, net of running costs: 41m, 74m, 123m, 90m, 55m and 20m. At the end of year 6 you pay 31m clean-up costs. The site will then be handed back to authorities (as worthless). Should you go ahead with the project? The cash flows are discounted at 7% p.a.

b) By using only linear interpolation or the Newton-Raphson method or the secant method (which you must code) determine the IRR of the project in (a).

c) Find the IRR for an investment that costs 96,000 today and pays 1028.61 at the end of the month for the next 60 months and then pays an additional 97,662.97 at the end of the 60th month if the investor discounts expected future cash flows monthly. You will once again have to do this iteratively.

d) Explain what is meant by the internal rate of return (IRR) in the context of project appraisal. What are the drawbacks of the IRR method?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Key Financial Market Concepts

Authors: Bob Steiner

2nd Edition

0273750127, 978-0273750123

More Books

Students also viewed these Finance questions

Question

=+30-3 Discuss the violence-viewing effect.

Answered: 1 week ago

Question

PROVIDE AN ANSWER FOR THE QUESTIONS DOWN BELOW:

Answered: 1 week ago